UK growth forecasts slashed in the Budget: Economy set to grow by 1.5% in 2017 and just 1.4% a year for the next five years

The official UK economic growth forecast for this year was slashed dramatically from 2 per cent to 1.5 per cent in today's Budget.

And if the Office for Budget Responsibility struck a pessimistic note on 2017, it had slightly worse news for the next five years.

Economic growth will average out at a little over 1.4 per cent a year from 2018 to 2022, and that will have a knock-on effect on the public finances with Government borrowing set to be far higher than anticipated.

Mr Hammond said; 'Thanks to the hard work of the British people, that deficit has been shrinking and next year will be below 2 per cent. 'But our debt is still too high and we need to get it down.'

Presenting his second fiscal statement of 2017, Chancellor Philip Hammond revealed that the OBR had cut forecasts for UK economic growth from 1.6 per cent to 1.4 per cent in 2018, from 1.7 per cent to 1.3 per cent in 2019, from 1.9 per cent to 1.3 per cent in 2020, and from 2 per cent to 1.5 per cent in 2021 - and made a forecast of 1.6 per cent for 2022.

That averages out at a meagre annual growth rate of 1.42 per cent, reflecting the UK's struggle with 'stubbornly flat' productivity and weaker business investment.

The Chancellor said the Government would 'look forwards not backwards' as the UK economy embarks 'on a path to a new relationship' with the European Union that will be 'full of new challenges and... new opportunities'.

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Berenberg’s senior UK economist, Kallum Pickering said that the 'significant downgrade comes against accelerating growth in the UK’s major trading partners, the US and the EU, and the strongest sustained pick-up in global demand in a decade'.

'For a medium-sized open economy whose fortunes are strongly linked to its close neighbours, such a large downgrade is highly unusual and reflects the seriousness of the economic challenges facing the Brexit-stricken UK and the uncertainty about what is around the corner.

The National Institute of Economic and Social Research said the OBR had issued 'a cautious forecast that is below NIESR’s latest projections that were published in early-November'.

'Like us, the OBR has revised its real GDP growth forecast to lower levels because of downward revisions to potential productivity growth.' they added. 'On these forecasts, UK economic growth will continue to lag behind the OECD, as we pointed out in our November Review.'

Overly pessimistic: Economists were surprised at the extent of the OBR's growth downgrades.

'But it is possible that, after consistently overestimating the UK’s growth prospects in the past, the OBR have gone a little too far with the downgrades this time around.'

On the public finances, the OBR has pencilled in borrowing to be £8.4billion lower this year at £49.9billion compared with its forecasts in the Spring Budget.

While it also revised down deficit predictions from £40.8billion to £39.5billion in 2018, the watchdog hiked its long-term borrowing forecasts.

It revised the deficit up from £21.4billion to £34.7billion in 2019, from £20.6billion to £32.8billion in 2020, and from £16.8billion to £30.1billion in 2021.

The OBR expects borrowing to sit at £25.6billion in 2022.

Mr Hammond added: 'Thanks to the hard work of the British people, that deficit has been shrinking and next year will be below 2 per cent.

'But our debt is still too high and we need to get it down.

'Not for some ideological reason, but because excessive debt undermines our economic security, leaving us vulnerable to shocks; because it passes the burden unfairly to the next generation, and because it cannot be right to spend more on our debt interest than we do on our police and our armed forces combined.'

Focusing on debt, the OBR expects it to peak at 86.5 per cent of GDP this year, before falling to 86.4 per cent in 2018, 86.1 per cent in 2019, 83.1 per cent in 2020, 79.3 per cent in 2021, and 79.1 per cent in 2022-23.

The move would mark the first sustained debt decline in 17 years, the Chancellor said.

Responding to the Budget announcement, Labour leader Jeremy Corbyn said it was a 'record of failure with a forecast of more to come'.

He said: 'Economic growth has been revised down, productivity growth has been revised down, business investment revised down. People's wages and living standards revised down.

'What sort of strong economy is that? What sort of fit for the future is that?

'You may recall, Mr Speaker, that the deficit was due to be eradicated by 2015, then that moved to 2016, then to 2017, then 2020, and now we are looking at 2025.

'They are missing their major targets, but the failed and damaging policy of austerity remains.'